The Role of Procurement (AQA GCSE Business)

John is a sole trader who owns a business called Adventures. The business was set up seven years ago to sell activity holidays in the UK. John has been a keen water-sports enthusiast for many years. He had been unhappy when working for a large insurance company. He therefore decided to set up Adventures. Adventures offers a range of activities such as windsurfing, canoeing and surfing.

One holiday that Adventures sells is a weekend course where people can learn to windsurf. The business employs an instructor and books the hotel. This is then sold as a package holiday to customers.

Table 1: Cost information for a windsurfing weekend

John strongly believes that a successful business should be a sustainable business. Adventures will only book hotels that take responsibility for their impact on the environment by recycling and using renewable energy. This means Adventures often pay a premium price for accommodation.

Many of John’s customers go skiing during the winter months and he would like to expand and sell ski holidays in Italy. John has never skied himself so he has asked his friend Lucas for some advice. Lucas has never run his own business before but has lived and worked in an Italian ski resort called Folgaria for several years. He is familiar with the local hotels there and knows several ski instructors. Lucas does not believe that the business should pay a premium price for hotels but is keen to invest in the business. Lucas would like to form a partnership in which decisions are shared equally with John.

Fleet Bikes is a United Kingdom (UK) business which manufactures high quality adult road bikes to sell to retailers. Orders from retailers are expected to be delivered within two weeks. There are lots of competitors for adult bikes. To increase its share of the bike market, the business has decided to develop its own range of children’s bikes. A loan will be required to fund a factory extension. The business is aiming to reduce production costs.

The factory uses total quality management (TQM). The production of bikes uses steel and aluminium. The price of these raw materials goes up and down daily. Each month, Fleet Bikes estimates the amount of steel and aluminium it will need in advance for production. These large orders are delivered within a week and take up all the space in the warehouse. Currently, Fleet Bikes receives a 10% discount from its main supplier for large orders. The supplier can deliver smaller amounts within three hours for an extra cost.

Children’s bikes will be sold only on Fleet Bikes’ website. Customers will expect quick delivery and many of the bikes will need to be manufactured and then sent to the customer within 24 hours of receiving the order.

Demand for Fone ltd's ultra-thin phone cases has been increasing. However, the production department has not been able to make them in the quantity required. Fone Ltd has decided that it will introduce flow production in the department.

Specialist machinery was installed in April. In the new flow production process, workers have specific jobs, such as loading different coloured materials into the machines. The process will allow changes to be made quickly, such as the shape and style of the phone cases for different makes and models of phones. The new flow production process means the business can produce up to 100 000 phone cases a month.

Production of phone cases at Fone ltd

Fleet Bikes is a United Kingdom (UK) business which manufactures high quality adult road bikes to sell to retailers. Orders from retailers are expected to be delivered within two weeks. There are lots of competitors for adult bikes. To increase its share of the bike market, the business has decided to develop its own range of children’s bikes. A loan will be required to fund a factory extension. The business is aiming to reduce production costs.

The factory uses total quality management (TQM). The production of bikes uses steel and aluminium. The price of these raw materials goes up and down daily. Each month Fleet Bikes estimates the amount of steel and aluminium which it will need in advance for production. These large orders are delivered within a week and take up all the space in its warehouse. Currently, Fleet Bikes receives a 10% discount from its main supplier for large orders. The supplier can deliver smaller amounts within three hours for an extra cost.

Children’s bikes will be sold only on Fleet Bikes’ website. Customers will expect quick delivery and many of the bikes will need to be manufactured and then sent to the customer within 24 hours of receiving the order.

Thorntons Ltd is a British chocolate making business which is part of a larger company. Thorntons sells its chocolate products in stores. Boxes of handmade chocolates sell for a minimum of £6. Employees are trained to personalise some products, such as adding a name to Easter eggs, to add a touch of luxury.

Two of Thorntons’ ingredients are cocoa and palm oil. A Fairtrade agreement for cocoa guarantees a higher price for Fairtrade farmers above the normal market price at which it can be sold.

The company wants to behave ethically. When its supplier of palm oil cut down too many trees and had a negative impact on the environment, it found a new supplier in South East Asia.

Style the Chic (STC) has experienced rapid growth since 2018. It outsources all the production of its fast fashion collections. It currently uses six suppliers who are based in the UK and China.

Each collection (range of clothing items) can contain up to 30 items of clothing including jackets, dresses and tops. Items will be available to buy for about four weeks. Suppliers are sent designs based on the current trend. They must create clothing samples for marketing within 48 hours. Full production and launch is a month later. If sales are high, more orders are expected quickly. Otherwise the business moves on to another collection.

Table 2 – STC’s costs and sales

Table 3 – STC’s suppliers

Average unit costs have increased recently at Fone ltd. Anita feels that low employee productivity is the reason for this. To improve productivity, she is considering two options.

Introduce a new lean production technique

• Each department can have a group of up to three employees making suggestions on how to improve the process to lead to higher productivity

• It will be optional to join these groups

• Groups can be set up immediately and will have responsibility for reviewing roles and tasks within the department and suggesting changes

• There will be a bonus of £5000 for each department (to be shared within the department) if they improve productivity in the next three months

Change the organisational structure and recruit internally for new assistant managers within each department

• Internal recruitment for assistant managers can be completed within a month

• This will result in a pay rise of £5000 for successful applicants

• Assistant managers will have the authority to make some decisions and will oversee training

Figure 1 Current organisational structure of Fone ltd

Table Information about employees’ productivity in each department at Fone ltd